Pipeline popularity contest

Whatever way you look at it, Alan Cameron from Hastings Funds Management is a winner from the proposal by Pipeline Partners Australia to make a cash offer for
Hastings Diversified Utilities Fund
(HDUF) valuing the target at $1.24 billion.

He is benefiting from the strong interest in Australian infrastructure assets from Canadian pension funds keen to find predictable, low-yielding, long-term assets to match their defined benefit pension liabilities.

The Canadians, including the $C117 billion Ontario Teachers Pension Plan, the $C152 billion CPP Investment Board and the $C204 billion Caisse de dépot et placement du Québecare, have been chasing ­Australian assets for several years.

To a large extent they are after the same assets as local investors such as the Future Fund and Industry Funds Management.

However, the Canadians have been willing to pay more than the locals for infrastructure assets. That is probably because their global perspective shows there is a rarity in quality assets in economies that are stable and ­growing.

The common theme is the takeover of listed infrastructure assets to make them unlisted.

Cameron is the latest winner from this Canadian expansion offshore. In fact, if all goes according to plan he will collect several blue ribbons from multiple stakeholders.

If the Pipeline Partners offer of $2.35 per security goes ahead, assuming successful completion of a 45-day due diligence, Cameron and the HDUF advisers at JPMorgan and RBC Capital will have enlisted a full cash offer that significantly improves upon the cash and scrip offer from APA Group of about $2.05 per ­security.

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Cameron and his advisers have been in talks with the Pipeline Partners consortium for some time. For those talks to happen, Cameron had to recuse himself from the Hastings Funds Management board oversight of Utilities Trust of Australia, which is in the consortium. Valuing HDUF has been complicated by its highly active management team led by Colin Atkin. The fund has won lucrative new contracts that have changed the forward earnings multiples.

But based on several brokers’ earnings projections, the $2.35 price being offered by Pipeline Partners is a multiple of 10 times 2015 earnings. That is relatively modest and may explain why some brokers had expected rival HDUF bidder APA Group to lift its offer to $2.40 a ­security

APA, which is advised by Macquarie, yesterday extended its offer beyond the end of the due diligence date. This gives it the option of increasing its offer if the Pipeline Partners offer goes from being indicative to real.

The Pipeline Partners consortium, which is advised by Goldman Sachs, has made life hard for APA by saying its offer will need only 70 per cent acceptances. That means APA could be locked into a minority position on the HDUF register.

Its alternative is to accept the offer and collect about $100 million in profits.

APA was struggling to get headway with its bid because of competition concerns raised by the Australian Competition and Consumer Commission. However, its offer to sell the Moomba pipeline, which is said to be worth about $460 million, might keep its bid alive.

Cameron will be a winner for Hastings Funds Management and its ultimate owner,
Westpac Banking Corp
, if a HDUF bid is completed because it will likely generate a large performance fee for the funds ­manager.

The performance fee is determined by the movement of the price of HDUF’s securities compared with an index.

The heated debate over the proposed changes to the placement rules for small and mid-cap companies listed on the Australian Securities Exchange is likely to cool down now that submissions have closed.

One could be forgiven for thinking the reaction to the ASX proposal has been entirely negative.

Certainly, those who have opposed the idea of allowing companies with a market cap of less then $300 million to increase their placement capacity in one year from 15 to 25 per cent with prior shareholder approval have been successful in loudly beating the negative drum publicly.

However, by the time the ASX closed its public consultation process yesterday, there had been 150 submissions from a variety of parties including listed companies, advisers, brokers, retail and institutional investors and industry associations. Many of these submissions were in favour of the proposed changes.

But we will never know the full range of views that have been submitted because the ASX takes the view that each submission to a proposed change in listing rules must be treated as confidential. Anyone can release their submission publicly but the ASX won’t be putting copies of submissions on its website, as happens with all consultations by the securities regulator, Treasurer and parliamentary committees.

Considering some listing rules have the force of law there is an argument in favour of making all submissions public unless stakeholders request ­confidentiality.

Transparency in the consultation process would lift the level of debate and allow the subtleties and nuances involved to be explored in greater depth in the harsh light of day.

It would avoid accusations of bias when the ASX summarises the submissions when it publishes its final proposals.

Also, it might lead to less confusion about what is being proposed including the ancillary efforts by the ASX to increase investor understanding of small and mid-cap companies through a $1 million grant to fund broker research.

One vocal critic, Ownership Matters, which is a proxy advisory group, said yesterday that the proposed changes were an attack on the property rights of shareholders, and the ASX had presented insufficient ­evidence to support them.

However, a supporter of the proposals,
John Poynton
, who is co-founder and executive chairman of Azure Capital in Perth, says the critics have failed to take into account how important it is for small and mid- cap mining companies to be able to raise capital quickly through ­placements.

He says there may be a case for the Corporations Act to include new ­definitions of sophisticated investors so that wealthy retail investors can be included in certain placements for small companies.

The ASX proposals look like they are headed for a compromise that could involve lowering the market cap limit from $300 million.